Free Forex Indicator

Resetting Moving Average Indicator

Benoit Mandelbrot, in his book, The Misbehavior of Markets, discusses important consequences on the fractal nature of markets. All charts, whether you view the fifteen minute or the daily, resemble each other.

The math behind fractals is insanely complex, but the ideas behind them are simple enough. Little to nothing in financial markets is normal. Try comparing the volatility of the pre-Asian open (non-existant) to liquid European hours (undeniable). Even worse, compare a typical Friday morning with NFP Friday. Markets either flat line or jump wildly.

All time is not equally important. Mandelbrot terms it trading time. Traders know trading time as the more familiar term fast market. When NFP comes out, the higher volatility carries a dramatically heavier impact when compared to the candles appearing before it.

When trading time or fast markets occur, taking the average of one big move and splitting it between 20 dramatically smaller moves does not highlight anything important. If you take the average of 200, 20, and 15, the number 118 does not say much about the group as a whole.

The Resetting Moving Average attempts to eliminate this concern by resetting its average period every time a large candle occurs. Whenever a candle closes more than 2 standard deviations beyond the previous close, it will set the moving average value to that bar's close. If the next bar is less than 2 standard deviations, the period is now 2. The moving average value displayed on the chart relates more to the current price action.